Planning with Patel

Ebrahim Patel, the minister for economic development, likens the changes required under his new growth path (NGP) to the compromises reached when South Africa became a democracy.

Much like the way the Nationalist government and the ANC had to meet around a table to reach agreement, so too will business and labour “have to do things differently”, said Patel in an interview with the Mail and Guardain.

The new growth framework document released to Parliament this week sets a very ambitious target—the creation of five-million jobs in 10 years. To do this it proposes a host of measures, both macro and micro-economic, that will require a broad social compact between labour, business and the government, if they are to work.

Hot potatoes in the NGP include a broad accord on wages, proposing caps for executives and highly paid executives, with inflation-linked increases for low- to middle-income earners. It also calls for looser monetary policy by the Reserve Bank and the allocation of a “prudent” portion of retirement funds to developmental and growth-oriented investments.

But Patel acknowledged that the government had not put a host of easy wins on the table. He said the NGP could not work without greater efficiency by the state to free up resources for ambitious plans to develop infrastructure and boost targeted economic sectors, such as mining and agriculture, and develop the “green” and information and communication technology sectors.

‘We are not looking for one big agreement’
In South Africa’s labour market either bargaining power or scarce skills had been used as a determinate of wages, he said.

“The net outcome is us all pursuing our own interests and deepening inequality. We all have to put something on the table.”

He said that any wage accord would not necessarily be a permanent one, but the legitimate questions of how South Africa could create a common vision in a society with such massive inequality needed to be addressed.

“We are not looking for one big agreement,” he said.

Questions about wages would be one in a series of interventions that social partners would continue to discuss.

Youth wage subsidy
However, the question of a youth wage subsidy was absent from the labour market proposal. But he said that the notion was not entirely off the table.

Instead, because youth unemployment was such a huge problem, it had to be addressed in several ways. These were being addressed as part of a comprehensive package on the problem. Possible measures would include skills development programmes and incentives to encourage both the youth and employers to take part in the scheme.

Though the proposal to loosen monetary policy has been met with scepticism, Patel said that the government “sets the framework within which institutions such as the Reserve Bank do their work”, although they did so independently of the state.

He said that key to the positions taken by the central bank’s monetary policy committee was the question of inflation. The NGP envisaged using tools such as tougher competition policies to keep prices in key sectors down. This could work to keep inflation lower, with the added benefit that an accord on wage increases could bring.

“If we do more to deal with inflationary pressure, we give the Reserve Bank more scope on monetary policy,” he said.

Green bond
Similarly, using retirement funds as a resource to drive growth and development did not mean the government would impose requirements on institutions. The proposal, supported by labour and retirement trustees in the past, had simply lacked “reliable instruments to invest in”, he said.

One possible example was a green bond, created by a development finance institution, such as the Industrial Development Corporation, which could apportion a prudent amount of funds towards green economy initiatives.

“We can be prudent while we utilise a portion of the funds for growth and development investments.”
The NGP had been deliberately vague in some cases, according to him, to allow social partners to assist in developing how some goals would be achieved.

But the NGP has been met with scepticism in some quarters.

Investec’s Annabel Bishop said that, although the goals of social upliftment were laudable and necessary, the NGP’s proposed implementation was “likely to prove both faulty and indeed unattractive to the private sector, to the extent that the private sector and job creation therein shrinks, while the size of the state expands massively”.

“The NGP’s goals can be achieved more effectively via greatly reduced state control, a much lower level of regulation and, most importantly, a lower cost of doing business in South Africa than is currently experienced on these fronts,” she said in a research note.

‘The elephant in the room’
One business leader who did not wish to be named said that fundamental to the document was the question of state capacity—“the elephant in the room. There is abundant evidence that the state is failing to cope and [has] no plausible plan to turn that around,” he said.

The conflation of state and party and the continued deployment of political cadres into the government was a further impediment.

“Key to any successful developmental state is a thoroughly depoliticised and highly efficient civil service, which we do not have,” he said. “This is tantamount to creating a Rolls Royce with a lawnmower’s engine.”

In addition, he said, other departments and entities such as the treasury and the Reserve Bank had “distinct differences of emphasis”, which suggested that there was little consensus over the NGP within the government.

Tim Harris, the Democratic Alliance’s shadow minister for trade and industry, echoed this. He said several of the ideas tabled would be “anathema to Finance Minister Pravin Gordhan, Trade and Industry Minister Rob Davies, Planning Minister Trevor Manuel and Reserve Bank governor Gill Marcus”.

He said that the NGP subsumed the roles of Cabinet colleagues such as Manuel and his “dual responsibilities for long-term planning and African infrastructure development through Nepad”.

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